Redstone Mortgages Ltd v B Legal Ltd

A conveyancing solicitor’s duty when certifying title for a mortgage lender is governed by the retainer properly construed and by the standard of a reasonably competent conveyancer. The solicitor may rely on borrower information unless there is reason to doubt it, but must report discrepancies, material restrictions and matters indicating that the offered security is not good and marketable. A report must give the lender enough information to make an informed decision; merely flagging a shared-ownership lease is inadequate where its terms show possible restrictions and the solicitor cannot give an unqualified certificate. The solicitor need not decide the lender’s underwriting or loan-to-value policy. Specific variations or instructions may qualify the retainer, but general laxity cannot. Claims were dismissed in two transactions and breaches were found on the preliminary issues in two others.

Redstone Mortgages Ltd v B Legal Ltd concerned professional-negligence claims by a purchaser of residential mortgage-backed securities against the conveyancing solicitors used by the mortgage originator. The trial concerned four selected transactions and preliminary issues as to the contractual and common-law duties owed to the purchaser, and whether B Legal’s reports discharged them.

The court examined the retainer, the CML Handbook instructions, later variations and the parties’ streamlined working practices. It also considered challenges to the authenticity of internal memoranda. The central issues concerned occupation, the extent of registered land, shared-ownership leasehold interests, title insurance, and communications from Beacon’s completion staff.

1. Construction and scope. The retainer had to be construed objectively. Pre-transaction negotiations and the draftsman’s subjective intentions were not aids to construction, although objective circumstances forming part of the transaction could be considered. Redstone was party to the retainer only for specified purposes and had no contractual right to approve variations or particular instructions. Under the MPFA, it enforced rights which Beacon could have enforced, and no more. A specific variation or instruction could qualify the standard instructions, but generalised laxity or an unspoken convention could not. B Legal had to establish the specific departure.
2. Certificate of title duties. B Legal owed Beacon contractual duties and owed corresponding duties in tort to Redstone, applying the principle derived from White v Jones [1995] 2AC 207. The standard was that stated in Barclays Bank v Weeks, Legg & Dean [1999] QB 309: due skill, care and diligence were required, and an unqualified certificate could be issued only where the title was good and marketable and free from materially adverse restrictions or encumbrances. A reportable issue had to be reported, and completion withheld where further instructions were required. Title insurance did not generally remove these duties.
3. Evidence and communications. On an authenticity challenge under the Civil Procedure Rules 1998, the party relying on a document had to produce credible evidence of its provenance, but the overall burden of proof remained with the party bearing it. A forgery allegation should be pleaded fairly and squarely. Applying Wisniewski v Central Manchester Health Authority [1998] PIQR 324, an adverse inference required a case to answer supported by some evidence. B Legal could act through Beacon’s established completion-specialist channel where the specialist had apparent authority to convey an underwriter’s decision.
4. Transactions. In Welch, there was no sufficient reason to doubt the borrower’s occupation information, and B Legal could properly certify title. The claim was dismissed. In Sher, B Legal identified the discrepancy between the registered title and the proposed security and its memorandum was sufficient; the claim was dismissed. In Howard, the lease material indicated probable shared ownership and possible restrictions. The report was inadequate and the unqualified certificate was a breach. In McOwen and Parsons, merely reporting shared ownership was inadequate where the lease was available and disclosed restrictions affecting value and disposal. B Legal was not required to advise on Beacon’s detailed underwriting or loan-to-value criteria.
5. The remaining orders and consequential matters were left for a further short hearing. The time for appealing was extended to 21 days after that hearing.

High Court (Chancery Division): On 21 May 2013 District Judge Obodai ordered a trial of preliminary issues in four selected transactions. The present judgment determined those issues at first instance. No appeal is stated in the judgment.